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Bonds have been pummeled this year - it's going to be time to buy some bond funds soon. Been buying 6-month to 2-year duration treasuries via treasurydirect.gov

Bonds have been pummeled this year - it's going to be time to buy some bond funds soon. Been buying 6-month to 2-year duration treasuries via treasurydirect.gov - 2yr is paying over 4% now. Yeah, that's less than inflation, but definitely way better than what I was getting in the bank. I was going to mention iBonds for an easy 9.6% return, but it's Sept 30 so too late for getting in on that if you haven't (EDIT: apparenlty you can still get in on it through October). Not sure about short ETFs at this point - not saying we've seen the bottom yet, but the market is already down a good bit this year. Keep some powder dry so you can pick up some good deals over the next 6 to 12 months (bonds and equities). Inflation tends to be sticky so it's quite possible that the Fed will have to raise rates more than their current target (which is something in the 5% range) - if that's the case then you'll probably want to lock in some longer term treasuries if they manage to get over 6% yield (not saying that's going to happen, but it seems like it could be a possibility and you'd want to be positioned to take advantage of that)

dom96 4y ago
> Been buying 6-month to 2-year duration treasuries via treasurydirect.gov - 2yr is paying over 4% now Anyone know what the equivalent of this is in the UK?
- DoingIsLearning 4y ago
  UK gilt is issued by HM Treasury you can buy it in the open market (most banks buy it all so you can never really buy from the Treasury directly). _Again_ buying gilt and buying an ETF that tracks gilt is not the same.
smaddox 4y ago
Looks like the iBond rate applies through Oct, so not too late.
- tylorr 4y ago
  You'll get a months worth of that rate but then it will change. Could go up or down.
  - abeppu 4y ago
    But the rate is set off inflation, which has still been high. Whatever they set it to next, it's still likely to be about the best available place to put 10k.
  - smaddox 4y ago
    > KEY FACTS: I Bonds can be purchased through October 2022 at the current rate. That rate is applied to the 6 months after the purchase is made. For example, if you buy an I bond on July 1, 2022, the 9.62% would be applied through December 31, 2022. Interest is compounded semi-annually. https://www.treasurydirect.gov/indiv/research/indepth/ibonds/res_ibonds.htm https://www.treasurydirect.gov/indiv/research/indepth/ibonds... So 6 months of that rate, regardless of when during the window it was purchased. But, yeah, after that it could either up or down. And you have to hold for at least 1 year, and lose 3 months of interest if you cash out prior to 5 years.
  - roland35 4y ago
    Nope, you actually lock in 6 months of whatever the rate is time of purchase! It's a good deal!
baskethead 4y ago
NEVER EVER buy bond funds or bond ETFs. In an increasing interest rate environment like this, you will suffer terrible losses when the fund buys and sells positions. If you want, buy bonds outright, like US treasuries or commercial paper of reliable companies. Also stick with short-dated paper until we get to a peak in interest rates. The Fed has already said they will keep raising rates so we know rates will keep climbing for a while.
- thunky 4y ago
  > NEVER EVER buy bond funds or bond ETFs. This is bad advice to give generally. Yes there are tradeoffs but that doesn't make them bad investments. As rates rise, the bond fund is buying new bonds with higher yields, so the fund owner makes up for NAV losses as long as they hold it long enough to match the fund duration.
  - baskethead 4y ago
    No. As rates rise, when you sell your lower yielding stocks you are selling low and buying high, iteratively. Rising rate environments like we are in right now are a disaster for any bond etf that doesn't have short duration. You need to wait until interest rates have peaked or at least eased off.
    - thunky 4y ago
      You seem to be only concerned with the price of the fund while ignoring the yield. You have to look at the total return. Yes you're selling lower yielding bonds but like I said your replacing them with higher yielding ones, which contributes to your total return. This is true for short and long term funds. The key is to buy a bond fund with a duration that matches your planned holding time.
- ctchocula 4y ago
  This is overblown, because there are cases where you do want bond funds and bond ETFs. Was just reading this article today [1], which presents some of their benefits. - More convenient than individual bonds. - Can't estimate future liabilities perfectly and therefore won't be able to perfectly duration match using individual bonds. - If we hit a recession and interest rates drop, you'll get a nice price bump from your bond funds when your stocks are dropping. That being said, I do agree that the dangers and risk of bond funds and ETFs don't get talked about often enough, and that you should know what you're doing before buying them. If you have a short-term need for the money (e.g. need 100k for downpayment in 12 months' time), you should not buy a bond fund with a duration longer than 12 months. That is when you will hit the danger parent brought up where you will get a NAV drop and won't have enough money at the end of 12 months to meet your liabilities. In that case, you should really duration match [2] with individual bond that matures in 12 months. [1] https://occaminvesting.co.uk/against-duration-matching/ https://occaminvesting.co.uk/against-duration-matching/ [2] https://occaminvesting.co.uk/duration-matching-an-introduction/ https://occaminvesting.co.uk/duration-matching-an-introducti...

dom96 4y ago

> Been buying 6-month to 2-year duration treasuries via treasurydirect.gov - 2yr is paying over 4% now Anyone know what the equivalent of this is in the UK?

DoingIsLearning 4y ago
UK gilt is issued by HM Treasury you can buy it in the open market (most banks buy it all so you can never really buy from the Treasury directly). _Again_ buying gilt and buying an ETF that tracks gilt is not the same.

smaddox 4y ago

Looks like the iBond rate applies through Oct, so not too late.

tylorr 4y ago
You'll get a months worth of that rate but then it will change. Could go up or down.
- abeppu 4y ago
  But the rate is set off inflation, which has still been high. Whatever they set it to next, it's still likely to be about the best available place to put 10k.
- smaddox 4y ago
  > KEY FACTS: I Bonds can be purchased through October 2022 at the current rate. That rate is applied to the 6 months after the purchase is made. For example, if you buy an I bond on July 1, 2022, the 9.62% would be applied through December 31, 2022. Interest is compounded semi-annually. https://www.treasurydirect.gov/indiv/research/indepth/ibonds/res_ibonds.htm https://www.treasurydirect.gov/indiv/research/indepth/ibonds... So 6 months of that rate, regardless of when during the window it was purchased. But, yeah, after that it could either up or down. And you have to hold for at least 1 year, and lose 3 months of interest if you cash out prior to 5 years.
- roland35 4y ago
  Nope, you actually lock in 6 months of whatever the rate is time of purchase! It's a good deal!

baskethead 4y ago

NEVER EVER buy bond funds or bond ETFs. In an increasing interest rate environment like this, you will suffer terrible losses when the fund buys and sells positions. If you want, buy bonds outright, like US treasuries or commercial paper of reliable companies. Also stick with short-dated paper until we get to a peak in interest rates. The Fed has already said they will keep raising rates so we know rates will keep climbing for a while.

thunky 4y ago
> NEVER EVER buy bond funds or bond ETFs. This is bad advice to give generally. Yes there are tradeoffs but that doesn't make them bad investments. As rates rise, the bond fund is buying new bonds with higher yields, so the fund owner makes up for NAV losses as long as they hold it long enough to match the fund duration.
- baskethead 4y ago
  No. As rates rise, when you sell your lower yielding stocks you are selling low and buying high, iteratively. Rising rate environments like we are in right now are a disaster for any bond etf that doesn't have short duration. You need to wait until interest rates have peaked or at least eased off.
  - thunky 4y ago
    You seem to be only concerned with the price of the fund while ignoring the yield. You have to look at the total return. Yes you're selling lower yielding bonds but like I said your replacing them with higher yielding ones, which contributes to your total return. This is true for short and long term funds. The key is to buy a bond fund with a duration that matches your planned holding time.
ctchocula 4y ago
This is overblown, because there are cases where you do want bond funds and bond ETFs. Was just reading this article today [1], which presents some of their benefits. - More convenient than individual bonds. - Can't estimate future liabilities perfectly and therefore won't be able to perfectly duration match using individual bonds. - If we hit a recession and interest rates drop, you'll get a nice price bump from your bond funds when your stocks are dropping. That being said, I do agree that the dangers and risk of bond funds and ETFs don't get talked about often enough, and that you should know what you're doing before buying them. If you have a short-term need for the money (e.g. need 100k for downpayment in 12 months' time), you should not buy a bond fund with a duration longer than 12 months. That is when you will hit the danger parent brought up where you will get a NAV drop and won't have enough money at the end of 12 months to meet your liabilities. In that case, you should really duration match [2] with individual bond that matures in 12 months. [1] https://occaminvesting.co.uk/against-duration-matching/ https://occaminvesting.co.uk/against-duration-matching/ [2] https://occaminvesting.co.uk/duration-matching-an-introduction/ https://occaminvesting.co.uk/duration-matching-an-introducti...